The Moody’s Ratings risk qualification agency issued this week a concept in which it adds to the alerts that have been broadcast for several months, from various sectors, for the situation and fiscal risks faced by the country on behalf of Insufficient income and growing public spending, which are at risk of fiscal stability.
According to this firm, the lowest income than expected and the growing rigidity of Colombia’s expenditure, which currently have a BAA2 qualification with a negative perspective, in 2024 have intensified fiscal stress and has increased concern for compliance with their fiscal rule in 2025, taking into account that the movements based on transactions at the same time did not convince.
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“While institutional controls and balances have limited the radical changes of policies, an environment of unpredictable national policies and political noise in general will continue to undermine the Growth, which will further complicate fiscal results, ”they said in the report.
Another of the elements reviewed by this firm were the debt indicators, which from their concept are weakened, while the fulfillment of the fiscal rule is in doubt. They also said that despite the government’s attempts to restrict spending last year, an important shortage of income contributed to a deficit greater than 6.8% of the gross domestic product (GDP), which exceeded its expectations and those of the authorities.
Economic growth
Courtesy – API
“The tax revenues of $ 71.2 billion (4.2% of GDP) in 2024 were lower than those projected in the general budget of the Nation for that validity. The income was again close to the historical trend of 14.5% of GDP after an exceptional 2023, when they reached 16.7% of GDP, ”they added.
Moody’s asked to take into account that all of the above was partly due to the important slowdown in economic growth and the fall in commodities prices; which added to the fact that the tax revenues of 2023 reflected the tax reforms of 2021 and 2022 and the decisions of the Constitutional Court.
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“The increase in last year’s deficit reversed the decrease in debt load between 2020 and 2023. The debt/GDP ratio increased more than six percentage points by one year up to 60%, and we estimate that the interest/income ratio From the public administration rose to 16% from 12.6%, ”they said.
Due to all of the above, for the Risk Qualifier, the load of Colombia’s debt is now close to the median of its BAA peers, while the burden of interests remains high above that of its peers with similar qualifications; making it clear that if it had not been because of the transactions only once, the story would have been different.
Economic growth.
Courtesy – API
“This would have been the first violation of the fiscal rule since its creation in 2011. The violation of the fiscal rule is still possible, since income estimates differ. In our opinion, the weakening of the fiscal position of last year reflects the rigidity of Colombia’s expense structure, which limited the government’s ability to compensate for the decrease in income with spending cuts, ”they said.
Moody’s also addressed the repairs and alerts issued by the Autonomous Committee of the fiscal rule against the Government’s plan to comply with the fiscal rule and supported the thesis that to comply with this goal, it is necessary to cut the expense, given that the shortage of income would force the Government to further increase debt issuance to finance planned expenses.
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“A greater burden of debt, together with the breach of the fiscal rule, could undermine the confidence of investors. This would increase the costs of indebtedness and the interest/income relationship, which would further press the fiscal position of the Government. The government could again announce cuts or freezing of spending this year if it foresees a large revenue deficit, but given the rigidity of the expenditure of Colombia, The recurring use of such measures would also raise doubts about the effectiveness of its fiscal policy, ”they said.
Limited agenda
Moody’s said that Colombia retains a key strength in its credit profile thanks to its history of prudent macroeconomic policies, the independence of the Bank of the Republic and the role of institutions to curb radical changes, which put at risk the stability of the branches of public power.
“Since the beginning of Gustavo Petro’s government in 2022, Congress And the courts have limited structural reforms that would have expanded the role of the State in the economy, allowing to preserve some stability against fiscal stress, ”they said.
Colombian pesos
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That said, they highlighted that although the Government managed to approve a pension reform, the progress of other key reforms, such as labor and health, has been stagnated by the lack of majorities in Congress and anticipates that the Executive will insist on its political agenda until 2026, but any progress will depend on the institutional filter. This political dynamic will continue to influence the confidence of investors and, therefore, in the behavior of financial and GDP markets in 2025.
Now, with respect to economic indicators, Moody’s projects a growth of 2.5% in 2025, exceeding 1.7% of 2024, although below the estimated potential of more than 3%, due to an still weak investment.
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“Political uncertainty and regulatory changes have negatively affected strategic sectors such as infrastructure and public services. In addition, high internal and external indebtedness costs raise financial and fiscal risks, impacting sensitive variables such as debt/GDP ratio,” they suggested.
Finally, the Risk Qualifier put on the table that the next Ads related to adjustment measures for the rest of the current administration, which will be made in the June 2025 MFMP update, will be important to assess whether the weakening of debt indicators and the effectiveness of Colombia’s fiscal policy will persist beyond 2025.
“This year’s persistent political volatility could hinder the government’s ability to administer fiscal accounts. With the elections next year, there is less incentives for the Government to announce tax adjustments – such as spending cuts – if there is an income deficit,” they concluded.
Moody’s asked not to overlook that the liquidity of the government has remained very limited due to lower income than the expected costs of indebtedness. In addition, given the difficult current fiscal position, interest rates is more likely They remain high and worsen the affordability of Colombia’s debt.
